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Large employers must avoid health benefit design myopia

Walgreen Co. become the latest large employer to make significant changes to its employee health plan when it announced that it will move approximately 160,000 of its employees onto a private health insurance exchange, starting in 2014. The strategy is starting to look like a trend: Over the last several months, IBM, Time Warner, Sears Holdings and Darden Restaurants have all made similar announcements.

The logic behind this approach is straightforward. Under the new plans, employees will be given a fixed sum of money each year and will then choose their coverage and insurer from an online marketplace. The plans give employees the flexibility to select the plan that’s best for them and the marketplace model creates competition among insurers, potentially lowering health care costs.